More Noise for Sirius XM, But Howard Does Deserve Better

The disrespect some Sirius XM (NASDAQ:SIRI) subscribers and SIRI longs show Howard Stern never ceases to amaze me. In his movie, Private Parts, Stern noted more than once that "yeah, most of the things I do are misunderstood." I expect the general public to mischaracterize Stern, treating him like nothing more than a overpaid and vulgar shock jock, while ignoring the fact that he's an immensely talented industry pioneer who conducts a better interview than anybody late night television or the network news could trot out.

Seeking Alpha contributor Spencer Obsborne wrote an article that reviews the history of the lawsuit Stern and his agent, Don Buchwald, filed against Sirius XM. Simply put, Stern and Buchwald claim that Sirius XM owes them several bonuses for hitting subscriber targets. The snag centers around whether or not XM Radio subscribers who came into the Sirius fold post-merger count toward the incentives.

Everybody has an opinion about who is on the right side of the line here. Most have chosen to castigate Stern, pointing out flaws in his most recent argument. While I tend to think Stern has a pretty good point - and wins what might just be a battle over contractual word choices - I can see where he might lose the legal battle.

Looking at the issue through an investment lens brings about several points that might matter to the stock.

First, consider some of the strong words Stern had for Sirius XM:

... it was very important to me that I not simply be an employee who cashed a paycheck every two weeks. I was watching (former terrestrial radio employer) Infinity prosper because of my hard work and the popularity of my show and while I was paid well, it seemed to me that the money coming into Infinity was going to the company's investors and its management, rather than to the talent who were actually doing the work.

Shortly after I signed with Sirius ... (the company's) executives greeted me as a partner ... The company was gathered together in the lobby and people hailed me as the company's savior. I told the gathering that the best was still to come, that we were going to bring in listeners and that we would turn the company around. I told them that not only would we beat XM, but that we would be so successful that we would acquire XM ...

When Sirius needed me to help save it, the company promised to pay me if the company exceeded its subscriber targets by at least 2 million subscribers. Now that the company has done that and more, it is refusing to pay me what it owes.

As Sirius XM writer Brandon Matthews pointed out in the above-referenced article, Stern incorrectly uses the word "acquire" in regards to the merger between Sirius and XM. While I agree it's sloppy and that Stern should be unhappy with his legal team, it was likely an innocent mistake; it should not have a bearing on the case. Either way, Sirius XM subscribers and investors need to take a step back and separate the letter of the law from the spirit of the law, so to speak.

In spirit, Howard Stern deserves whatever he asks for. The notion that he already makes enough money does not hold water. Sirius XM CEO Mel Karmazin would sue the company if it withheld bonus payments he thought he was due. And Karmazin's a guy that rides limos at the Super Bowl. He's loaded as well. "Poor" saps like us look at mega-millionaires and forget that it's all relative.

Four things have allowed Sirius XM to prosper as it has. The bailout it received from Liberty Media (LCAPA). Karmazin's incredible work as CEO; he's done everything from control the debt situation to communicate incredibly well with shareholders. Above-average word-of-mouth advertising and hype from loyal subscribers and shareholders have kept Sirius XM on the radar when it might have otherwise faded away. And, of course, the presence of Howard Stern for the first five years and, almost as importantly, for the next five. In effect, Stern's arrival on the scene basically permitted each of the previous three things to take place.

If you're a shareholder, you have Howard Stern to thank for your $2.00-heading to $3.00-stock. You have him to thank for the impressive subscriber growth. You have him to thank for keeping Sirius XM high enough up on the radar screen for people to notice. You have Stern to thank for the fact that Sirius XM is not an even more obscure niche than it is now. You have him to thank for satellite radio's existence.

This is not hyperbole. I firmly believe this. If Stern did not initially join and resign with Sirius XM, the media coverage on and general public awareness of the company would be as good as non-existent. In terms of marketing and promotion, Stern is basically it. Without him, the company would have had to spend considerably more money than it has on brand awareness, for instance, than it has to this point. Stern put the company in a position where it could ride the publicity and word-of-mouth generated by the forces that are ardent SIRI supporters and Stern, not to mention his army of advocates and attention seekers.

I cannot help but think that there's an air of theatre in all of this, similar to Stern's December 7th rant, when he proclaimed that he would not take a (expletive) pay cut, while trashing Sirius XM CEO David Frear. Of course, Stern re-signed with Sirius XM a couple of days later.

Probably before the end of the year, Stern and Sirius XM will reach a settlement on the lawsuit. Whatever the company has to pay Stern will not scare off investors; in other words, don't expect the stock to take more than a temporary, emotion-laden hit. If Wall Street and Main Street feel comfortable running this thing past $2.00 with $3 billion of debt on the books, I don't think they'll care much about what will amount to a payment to Stern for even more publicity.

In typical Stern fashion, he'll break his silence on the whole thing just before or just after a settlement gets announced. He'll riff about not getting any respect and being misunderstood while he rails on Karmazin. And then, Howard and Mel will gather the inner circle in Stern's private wing of headquarters, raise a glass and note that "the best is still to come."